By Noreeta Mohd Nor and Lim Sheh Ting

(1) Torrens System

Malaysian’s land law is based on the Torrens System, which was originated from South Australia and developed by Sir Robert Torrens. This system is administered by the State Land Offices in Malaysia to ensure an indefeasible title to those included in the register.

(2) Type of property titles

Generally, there are two categories of titles in Malaysia available for foreign purchasers, it can either be “Freehold” (held in perpetuity) or “Leasehold” (land owned by the State which allow the owner to stay in possession for limited period).

Upon completion of a sale and purchase transaction, a “Title” will be granted to the owner of a landed property and a “Strata Title” will be given to the owner of an apartment or condominium. However, in the case of new apartment/condominium buildings, the strata title may not be issued for some time after the completion of the new building. With the aim to curb delay in the issuance of strata title, the Parliament of Malaysia has passed the Strata Titles (Amendment) Bill 2012 and Strata Management Bill 2012 which will come into effect soon in the form of Strata Titles (Amendment) Act 2013 and the Strata Management Act 2013 and will surely bring about a significant change to the landscape of strata developments.

(3) New minimum purchase price

The “Guideline on The Acquisition of Properties” issued by the Economic Planning Unit (“EPU”), Prime Minister’s Department, has been recently revised in line with the 2014 Budget announced in October last year by our Prime Minister Datuk Seri Najib Tun Razak.

Under this new ruling, the minimum value of properties in federal administered territories in Malaysia to be acquired by the foreign interest has been doubled to RM1 million per unit with effect from 1 March 2014. Previously, the minimum threshold was set at RM500,000 and Penang was the only Malaysian state whereby foreigners were subject to a minimum property price threshold of RM1 million for condominium.

However, the potential foreign purchaser is advised to check the state laws before making any  commitment as the minimum purchase price is not standardized between states and the date for implementation of this policy change may vary from State to State.

Notwithstanding the above, the minimum threshold remains unchanged at RM500,000.00 per unit for Malaysia My Second Home (“MM2H”) participants.

4) Approval from state authority

To date, foreign purchasers are no longer required to obtain Foreign Investment Committee (“FIC”) approval for the property purchases as FIC has been disbanded on 30 June 2009 and replaced by a new department, EPU, and the approval from EPU is only required if the property acquired (except for residential units) is valued at or above RM20 million. However, any acquisition of property by for foreign purchasers is still subject to the State Authority’s approval according to Section 433B of Malaysian’s National Land Code, 1965.

(5) Restrictions on acquisitions

There are a few restrictions that foreign buyers must know before considering investing in Malaysia. Firstly, as mentioned earlier, the properties must be valued more than RM1 million per unit. Residential units which are categorised as low and low-medium cost units, as determined by the State Authority, are not opened to foreign buyers. Secondly, properties which are built on the land designated as Malay reserved land are prohibited to be acquired by foreign interest. Lastly, no acquisition is allowed by foreign interest on properties which are allocated as bumiputera interest in any property development project as determined by the State Authority.

To elaborate further “foreign interest” means any interest, associated group of interests or parties which comprises of :-
(i) an individual who is not a Malaysian citizen; and/or
(ii) an individual who is a permanent resident; and/or
(iii) foreign company or institution; and/or
(iv) local company or local institution whereby the
parties as stated in item (a) and/or (b) and/or (c)
hold more than 50% of the voting rights in that local
company or local institution.

(6) Real Property Gains Tax (RPGT)

In Malaysia, every person, including foreign owner, will be subject to RPGT on the gains arising from the disposal of real property by virtue of Section 6 of Malaysian’s Real Property Gains Tax Act 1976. Nevertheless, it is worth noting that the Real Property Gains Tax (Exemption) (Revocation) Order 2013 [P.U. (A) 369/2013] has recently been gazetted and the new RPGT rate takes effect from on 1 January 2014:- 

From the above, it is clear that there is a specific framework in Malaysia on property acquisition by foreign investors. With the will and way shown, the rest is up to the investors.